Ann: Resources Rising Stars Roadshow Presentation, page-7

AuTECO poised to close gap on copper peers amid more bullish forecasts for red metal
Ken Brinsden ponders valuation disconnect between WA and Canadian lithium companies, UBS backs gold and iron ore run puts CZR in spotlight.
A DAY AGO

The junior copper stocks have had no joy on the copper price front in the year to date.
While the current price of $US3.67/lb is widely seen to be depressed, it is in fact an historically high price which should be enough to have sentiment to the key industrial metal riding higher than it is.

Fear not, the copper bulls are beginning to rise, none more so than Citi, which stirred things up at the recent LME Week in London by presenting a bull case for copper to average $US6.80 a pound in 2025 as supply comes under increasing pressure from the demands of global decarbonisation through electrification.


The junior copper stocks have had no joy on the copper price front in the year to date.
While the current price of $US3.67/lb is widely seen to be depressed, it is in fact an historically high price which should be enough to have sentiment to the key industrial metal riding higher than it is.
Fear not, the copper bulls are beginning to rise, none more so than Citi, which stirred things up at the recent LME Week in London by presenting a bull case for copper to average $US6.80 a pound in 2025 as supply comes under increasing pressure from the demands of global decarbonisation through electrification.

Citi’s bull scenario got a leg up during the week with the joint statement by the US and China after the meeting of their leaders that they supported the G20 push for global renewable energy capacity to triple by 2030.

Citi’s utilities research unit crunched some numbers on the tripling target becoming a reality and more particularly, what it would mean for copper demand. It found there would be extra demand from power generation of 350,000t in 2025, rising to 2.5 million tonnes in 2030.
The 2030 figure is the equivalent of 2.5 Escondida-sized mines. Escondida is the world’s biggest copper mine owned by BHP and Rio Tinto. So the challenge of the required ramp up in global production is clearly huge.

There is obvious exposure to the copper upside thematic with BHP and Rio Tinto in this market. But if it is outsized leverage to the upside that it is sought, that rests with the junior copper stocks.

It is a message that came through loud and clear at the RRS Summer Series this week from AuTECO (ASX:AUT) and Caravel (ASX:CVV).

AuTECO acquired the high-grade Green Bay copper-gold project on the Baie Verte peninsula in Newfoundland, Canada, earlier this year for the knockdown price of $65 million in staged payments.

The knockdown price reflected past difficulties at the mine under the previous under-capitalised owner which spent some $250m getting the project into production. AuTECO is taking a step back first by planning to grow the resource base, which already has a handy 811,000t on a copper equivalent basis.

Given all the existing infrastructure, there is the potential for an early restart from particularly high grade material within the resource, a grade not all that different to what Sandfire (ASX:SFR) use to mined at the fabulously profitable DeGrussa mine in Western Australia.

The potential to re-establish Green Bay as a 40,000 tonne-a-year producer, just as the copper market moves in to the forecast long-term bull phase, is yet to be reflected in AuTECO’s $170 million market cap.

There are not many 40,000tpa producers around. Two valid comparisons – the CSA mine in Cobar and Foran Mining’s operation in Canada – give a feel for what AuTeco is pitching for in the next couple of years.

The CSA mine was recently acquired for $1.7 billion by the former special purposes vehicle and now US-listed Metals Acquisition, while Foran has a $C1 billion market cap.
Normally at least, all that might be considered an over the top comparison. But AuTECO boss Steve Parsons is the guy who took Australia’s newest gold producer, Bellevue (BGL), from an exploration project to a 200,000oz-plus producer (after ramp up) in the space of 4.5 years.
He came out of executive retirement to head AuTECO and the Green Bay acquisition and reminded those at the conference that he and his team have a record of delivering on what they promise.

Meanwhile, Caravel has just upgraded the resource for its low-grade but big tonnage namesake project in WA to more than 3Mt of copper.
It makes it one of the biggest deposits held outside of the major miners, with the latest update also coming with 895,000oz of gold and 46 million ounces of silver – a possible source of by-product credits.
The stock, and its extreme leverage to the copper price thanks to 65,000tpa production potential, has been mentioned here previously. Canaccord has a 65c price target on the stock. It traded on Thursday at 15.5c.

Gold:
While the copper bulls are on the rise, the gold bulls are in stampede mode now that the price shackles of rising US interest rates looks set to be broken early next year.
At the head of the herd is UBS. It reckons gold is now ready to scale new heights in 2024 and 2025.

During the week it lifted it gold price forecasts to $US2,085/$US2,200/$US1,950oz in 2024, 2025 and 2026 respectively.

“We expect gold to benefit from Fed cuts, US recession, lower rates globally and a weaker US dollar over the next couple of years,” UBS said.
The forecast and commentary is not great for the broader market but clearly a positive for the gold price which is currently hovering around $US1,960/oz. That is up from the June half average of $US1,934/oz.

So there has been frontrunning of the interest shackles being broken. But not necessarily in the gold stocks. UBS nominated Evolution (ASX:EVN), De Grey (ASXEG) and Gold Road (ASX:GOR) as buys.

Should the gold price work its way back over $US2,000/oz, investment dollars will drift down to the mid-tiers and juniors. A better year in 2024 is in the offing for sector.